Construction is a risky business. During construction, claims for personal injury, property damage and economic losses are foreseeable and must be managed. After completion of construction, warranty claims and claims for latent defects are proliferating. Owners, developers and contractors must proactively understand and manage these risks if they expect to survive and thrive in today's increasingly complex construction marketplace. Below are three important strategies for managing construction-related risks and positioning your company for success.
1. Avoid Inconsistent Dispute Resolution Contracts. Owners, developers and general contractors typically find themselves executing multiple agreements relating to the design and construction of improvements. Whether one is an owner contracting with design professionals and other contractors or a general contractor is contracting with an owner, it is important to avoid having some of the contracts call for dispute resolution by litigation while others require arbitration. Construction disputes typically implicate both design professionals and different contractor trades. The most efficient way to resolve these disputes is getting everyone in one forum (i.e. either a lawsuit, mediation or an arbitration) in order to avoid the added expense and uncertainty associated with pursuing binding dispute resolution in two different forums. Having construction-related disputes decided in different forums greatly increases the cost of dispute resolution while adding a significant risk of inconsistent determinations.
2. Contract Tiebreakers. It is often said that there is no such thing as a perfect set of construction drawings free of conflicts and inconsistencies. The same may be said of construction contract documents. It is not unusual for a construction contract to have 15 to 25 separate attachments, including all exhibits, to the base form of agreement. The documents are frequently prepared by different parties and they often contain conflicting or inconsistent terms and conditions. Without a contractual term establishing a hierarchy of precedential value among these contract documents, the setting is ripe for disputes as parties will defend their conflicting positions based on inconsistent terms in the contract documents. Without a precedential hierarchy of documents established there is no ready way to resolve the conflict.
3. Indemnification. Owners and contractors traditionally rely on indemnification clauses to transfer risks of claim activity on projects. In Florida, the content of indemnity terms and conditions is regulated by Florida Statute, § 725.06. Failure to comply with the requirements of this statute renders the indemnity paragraph void and unenforceable as a matter of public policy. Accordingly, it is important to have the indemnity terms reviewed by knowledgeable construction counsel.
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